Financial Analysis of Independent Power Projects in India

Abstract

This paper aims at giving an insight into the financial analysis of the independent power projects in India (IPP), under Government Power Policy, 1996. These projects are generally executed on BOOT basis, wherein the IPPs build, own, operate and then transfer the project to statutory authorities. The project appraisal using Net Present Value (NPV) method is attempted. This is followed by risk analysis using Monte-Carlo simulation technique. Impact on NPV is studied using sensitivity analysis, where one variable affecting NPV is varied at a time keeping all other parameters constant. The result of this study indicates that based on power policy (1996), the IPPs are financially viable. The conclusions of the paper will be useful to promoters planning to enter the power generation industry. This is an exercise in valuation of an IPP, which will be useful even when mergers and acquisitions in the industry take place.